part of that deal was princess providing [speaker not understood] to bae and the improvement at that time was submitted to be between 5 to $6 million to which bae said, you know, the drydock is equipment that will need some assistance. so, the port provided a represent credit to help fund the cost of installation of that shore side power system. direct credit is taken at a rate of $300,000 per year. so, for a ten-year projection that rent contract is supposed to be [speaker not understood] in 2017. ~ rent credit bae has not collected those rent credit. the balance of that rent credit will be carried over into the new lease. also, the existing lease has a yearly termination provision which is a stand out point that

tenants often require in the lease to say if things are not going the way they had planned or projected, [speaker not understood] they want an opportunity to help out. when the fifth amendment to the current lease was entered into in 2007, bae was not given the option to be able to [speaker not understood] not until january this year. so, that was a six and a quarter year from when that provision was provided. so we're carrying forward the same term into the new lease because the new lease is going to be for 20 years. so, we are including an option, new yearly termination until 12 years into the new lease. here are the proposed key terms of the new lease. the initial term is going to be

for 20 years. with a probation for two five-year extensions. so, if they do exercise the two extension optionses, we will be looking at a total of 30-year lease. the base rent now is being increased by 14% to $1,200,000 in 2015 as a way to enter the lease by the edv of this year. ~ end [speaker not understood] that makes a comparison between the existing lease, rent is new to the port and under the new lease. the bottom line is that the base rent is going to be -- is going to have a three-year -- is going to have 3% annual

escalation for the term of the lease. currently the base rent which is only a million and 50,000 does not have an escalation. the [speaker not understood] is the rent will continue -- the base rent will continue to increase, which is a way to provide an assurance and guarantee for the quality and the ability of cash flow to the port. why there is percentage rent, percentage rent is kept at 3.3% of gross revenue in the table and the staff report, you will see an indication that the base rent, the net rent to the port are the same under the current lease and the new lease. however, [speaker not understood] a higher minimum base rent to the port over the term of the lease. where i indicated earlier there is going to be a new yearly termination of the lease by the tenant. we want the tenant to be able

to stay there for a minimum of ten years. at the edv of that ten years they have to provide the two-year notice to terminate so that will give port the opportunity to issue an offering or look for tenant to take over the shipyard. as indicated before, there will be repair and maintenance to be enforced. rent credit is being provided. there is an additional rent credit of 3 million to the existing 1.2. all this is provided in details in the staff report. [speaker not understood] to allow for the redevelopment of pier 70. i believe the first portion that we will be taking back will be the portion to help with the kringle park. we will ask bae to update the master plan and to include

provisionses to deal with climate change and sea level rise. ~ end apart of the new lease, we are updating the community package component of the lease. this is in compliance with the [speaker not understood] waterfront community benefit and beautification policy. bae will be required to provide this list that i'm showing on the slide and report it in the staff report. however, i'm goingv to point out the three key components of this community benefit. one is the -- we are asking -- we will be asking bae in the lease to create opportunity for local hire. currently their workforce composition consists of 55% minorities. we are hoping that they could

do better and improve to provide opportunity for local hires. we are equally asking them to utilize local [speaker not understood] and lbe wherever and whenever possible. we are equally asking bae to cooperate and coordinate with pier 70 tenants. this is to address the issue of, as we move forward and the new tenants in pier 70 bringing visitors, residents and businesses to the location that the tenants will work along well with bae to address the issue of [speaker not understood] as well as given an opportunity for the at thevthctionv ant to address bae's concerns. we do know that the shipyard

operation generates lights and sound. so, this will be an opportunity for bae to work with the tenants by giving them a heads up when there is going to be this type of activity that may be -- that the tenants and the residents need to be aware of. likewise, bae will be given opportunity by the tenants for this coordination to address some of bae's concern through site and building designs as well as improving another thing that they could do in term of building orientation to minimize an impact to the tenants. reasons for the new lease. as stated in the staff report -- i'm not going to go through all of them at this point, however, they are indicated in the lease. one that i do point out, though, is that because of the continuing agreement with

partner princess cruise, [speaker not understood] has three years to go into agreement with bae. we think it's to the best interest of everyone to allow the lease to be renewed when we do come back to you. next steps is outreach. we had a meeting -- we had made a presentation to the central fund advisory group on november 12. there is a letter from the chairman of the co-chair of that committee that must have been passed to you for support of the proposal to renew the lease for bae. we are continuing with the existing -- with the existing negotiation. there are a couple of item that we still need to tighten up and as well as you know, the deal that we have on the basic

terms, those are general term. but to put them into writing and include them in the lease requires special wording and additional reviews. so, that may be taking some time, so, that's why we're indicating that we are hoping that we'll be back by december 15, but it may take longer because those need to be incorporated into the lease. before the lease is approved it is going to be subject to ceqa review and clearance. particularly, we are expected the demolition of building 38 and 19. there is going to be required clearance for the pcb to be removed from the shipyard and then come back to the port commission once we think that lease is in executable form. at this point i'm going to turn it over to done bar, the general manager for the -- for bae to have some comments.

>> thank you, ricky. good afternoon, president katz and commissioners. my name is bill done bar i'm general manager of bae systems san francisco ship repair. and just want to take a few minutes today to tell you a little bit about our business there, what we're doing and what we hope to see as well in this next -- this lease. so, who we are i don't know if you're familiar. bae systems ship repair is the largest nonnuclear ship repair contractor in the united states. we have 7 locations in the gulf, east, west coast and hawaii as well as the joint venture in spain to support the navy's pre-position ships there. so, we're experienced in the ship repair area. as ricky said, the lease covers the pier 68 and 70 areas and includes the water, the land,

the drydocks and the cranes. we've been operating there and our predecessor is southwest marine for 27 years, and i look forward to continuing that. so, who our market is, our biggest customer is u.s. government or operators of u.s. government vessels actually. military sea life command, the coast guard, mira, noaa we work projects for them. cruise ships ariky and peter mentioned, post [speaker not understood] vessels dock here. we cover most of the major shipping lines that come through san francisco. we do a fair amount of work on commercial vessels as well, tankers, tugs, and those kind of operators and barge work, and then we also are available for emergency projects. some of you may have recalled a few months ago there was a tanker with an engine room fire off the coast of oregon and

that vessel ended up being towed back into san francisco. we were able to turn that around in about three weeks and get it back out underway again. as mentioned, our workforce as comprised of ten unions, ten union locals under the bae city metal trades council. our union workforce fluctuates from about 125 to 325 depending on the work load. we are 60 administrative and management personnel and then we supplement both with subcontractors which may flex up to 150 and we also can bring in skilled labor from our other shipyards, especially san diego, mobile and jacksonville to supplement our work as well. you heard mention a couple times, sometimes we have a thousand or more jobs here. bae itself typically will have about 550 of that number, and then the cruise ships will hire

contractors on their own. so, all together you have all that many people working there, just not all necessarily under bae's contract. i just wanted to mention a couple things. while we're looking at this lease provision or extension now, the current lease as i said expires in 2017. we are -- we do a maintenance on drydocks and in the last two years alone, we invested over $8 million in upgrade and maintenance on drydock number 2. we want to have the time to capitalize that expenditure as well as other improvements and continue to make in the area. it does keep an active maritime presence a was mentioned, and provide a lot of skills and a good wage labor. some of the community benefits we already mentioned were in the staff report, i know. we have, as peter mentioned,

contracted $18 million worth of business to san francisco businesses in the last two years, been pretty consistent about $9 million a year that we spend locally. we also tried to work with number of community groups. right now we're working with the bayview historical society and film blasting and painting and sculpture. red fish by indian base prepare to move it to the new location. when we do have cruise ship in, there are a lot of folk on there every day who are spending and shopping in san francisco. so, bring a lot of business in on a number of levels. i think we heard most of the community benefits. definitely we want to work with the port to get rid of the remaining pcb containing transformers around the site, clean up the site with some of the buildings that are really an impediment to work right now and/or condemned. and we work with the port again

on the development of a design for 19th street extension and how that changes the footprint of our property. a couple of the environmental benefits, i wanted just to highlight we installed -- i call it [speaker not understood] my environmental people call it an electrode coagulation treatment system. basically all the water, rainwater, industrial use water from the docks is collected, tested, and either treated for sewer disposal [speaker not understood] for appropriate disposal. we also now currently the drydock [speaker not understood] when the industrial activity is taking place from the bay bridge, you might look over sometime and you'll see big curtain over the end of the dock. that's to keep any contaminants from transiting into the bay. all of our sandblasting now is done with our fog nozzle process. it's a mixture of water that goes in with the grit. it keeps down dust and airborne contaminants from the area and

we've also converted now to only using low vsc paints for spraying. continued to make some other changes in our business. we switched over the number of forklifts we use to pull a number of them for propane, continuing to make that switch for better air quality and continuing to implement every veritionv l that we're able the shore side power system that was installed. i think you saw the slide our entryway is changing and we're going to have to use some relocation as the 19th street extension comes in. i don't really have any graphic of that for you, but i can show you what we did in san diego. we have an art project outside. this is actually through a program called washed away. the sculpture there what maiden tirely of plastics that were reclaimed through beach clean ups.

we're going to look at putting in some kind of new front entry with the turnstile system and then some kind of maritime motif and we'll have as part of the lease process to present those for approval before we make the construction. that's the san diego entrance for their worker turnstile entrance and we'll not have a building quite that long. we don't have as much space a they do, but we'll have some kind of similar entryway as we look at a redesign. so, i just wanted to give you a quick overview to tell you where we're at and again thank you for the opportunity. we've done business with the port of san francisco for many years, and it's been a cooperative relationship and i hope to continue that into the future. thank you. >> thank you. >> that concludes staff presentation on this matter.

peter dealy, gary, myself, and [speaker not understood] are here to answer your questions and get additional direction from you. thank you. >> is there public comment? [speaker not understood]? good afternoon, commissioners. my name is correspond inwoods. ~ corrin woods. [speaker not understood] central waterfront advisory group. we have written a letter of support for the bae lease extension. bae has been tremendously cooperative. as we went through the process of the pier 70 master plan, making sure that when we were

working on the master plan initially, one of our key bottom line requirements were that bae had to stay whatever else happened. and we've worked with them, they worked with the community. they have agreed to change their entrance. they have agreed to change their footprint. they worked with us to make sure that when we were designing green coat park that we would be able to have human powered boats in the cove and avoid interference with the big tug boats that bring those ship in. ~ ships in. we feel it's going to be a beneficial mutual relationship. they're willing to work with the community to make sure that their operations and the nonindustrial operations of the future of pier 70 work together so that both can continue.

and we're hoping once the lease gets done that we can persuade bae to come back on the cwag. thank you. >> any other public comment? seeing none, public comment is closed. commissioners? [speaker not understood]? >> okay. i just -- how did you come up with the base rent calculation? >> thank you. [speaker not understood] again. thank you for asking that. we came to that through three means. one is we conducted a [speaker not understood] to look at where the other competitive shipyards in california [speaker not understood], looking at the economic profile

of the shipyard to see what the rent level should be. and, again, equally looking at what the current base rent is, what is fair in terms of increasing it to the new level, a 50% increase we think is being competitive. so, we look at the existing rent. we look at the appraiser the surveyor of whatever that shipyard is asking for, and then we look at the opportunity for participation in up side. so, that's how we came to 1.2 million as the base rent. >> thank you. and then how much land is being given back to the port? >> those details are in the staff report. i don't know the exact size of those land area, but we do know that they're not significant in

comparison to the entire property. >> [speaker not understood] i asked david and he told me. two acres, approximately two acres is being given back to the port. >> [inaudible]. >> okay. and then is there a schedule for removing the demolishing of the buildings and their live/work pcb transformers? >> yes, we're asking them to get 2 years to five-year. >> 1 to 5 years? >> yes. >> and then there were also over the last several years some complaints regarding discrimination. so, i'm just wondering if we can have a brief summary of the status of those claims. >> thank you, commissioner. bill done bar. ~ dunbar there is in the staff report i

believe a letter i sent to peter i think a week or two ago just to give an update. there were a number of issues that were brought up in a couple different form. about half of those case have been dismissed. they're on final appeal. it is unlikely they will go forward, though. a couple of the cases that were raised, the parties agreeing to settlement without admitting [speaker not understood] but because in terms of the settlement i really can't say anything more about those. and there is really only one case left that is open and that's set for trial in front of court next year. again as i said in the letter, we certainly work to provide a workplace that is free of any harassment or discrimination. it's a place that's got a lot

of people working around there, though. we continue to do our best to -- i bring those up in meeting and other opportunities i can to discuss them. we're very vigilant in monitoring the property for graffiti and anything that does come up is immediately removed. so, we'll continue to watch that. as ricky mentioned, i think, our workforce is 65% ethnic and minority personnel. so, we have a great, i think, cross-section of folks who are working out. when i did -- once a month human resource he does a diversity snapshot and that was from first of november. i just would also note at that point when we had about 220 people, about 44 of them were san francisco residents as well. so, we are definitely getting some local hire in our work already and we'll continue to find ways to reach out there as well. >> thank you. i really appreciate that.

>> okay. >> did you this drydock have the same lifting capacity as the one in portland, your competitor? >> thank you, commissioner. no, drydock number 2 has a lifting capacity of 54,600 tons. the drydock that was just commissioned into service this week has a lifting capacity of 80 thou tons. it's significantly bigger and bigger space between [speaker not understood]. ~ 80,000 ton they might be looking at -- the post pan amax class coming out. >> what would make it most appealing for clients to go to oregon rather than san francisco? >> cheaper labor, what? >> yes, price. you know, you mentioned rent.

certainly san francisco -- this is a high-cost basis place for us to work and to operate competitively and one of the big draws, of course, in portland is the cost basis and when we compete on head to head matters, they often win. not always, which i appreciate and we'll continue to work better and smarter, but yeah, that's the big thing. the downside for them is location. you have a steam up the columbia river [speaker not understood] for a cruise ship you lose a day both ways. the good news -- part of the good news is i'm still at the moment have the cruise ship bookings into 2016. so, even though people know there is a dock up there, they're still booking space here in san francisco. >> could we be more specific on your marketing, marketing plan, how you market it in order to

-- so that we can benefit from the gross receipts? >> sure. well, we do have -- you know, i have locally a business development person who work with me and works directly with clients seeking out opportunities. we also watch -- of course, all the state and federal opportunities are posted and so we watch for those when they come out. we work with our clients to find out what their upcoming repair need and what they might be looking for. we have a fairly good handle on who the market is or who the ship owners are. so, we seek them out and try to make connections and make sure that we are placed in the best light for opportunities that come up. >> thank you. i have one question for peter. on the liability insurance you

have 5 million in there. isn't that low for something of this magnitude? >> actually i think it's more than 5 million. all the -- the city has a risk manager and all of our liability insurance requirements are put through a very rigorous review. i don't have it in front of me, commissioner, but i think it's more than 5 million. there is an environmental fee that we have in case there is an environmental issue. >> i don't expect you to answer, i'd like an update on that. >> i will. at the next meeting i'll make sure i have more specifics for you. >> thank you. >> i think a lot of questions have been covered, but i guess one question i do appreciate we had a picture of what your san diego entrance looks like. i think one of the issues we talked about here in this commission given development and pier 70, obviously you're going to have some more upscale

neighbors. hopefully we'll be going through a major change. so, can you give us a little bit more idea of what you're thinking for, how you will upgrade and what it will look like for the entrance in san francisco? and we would love to have a chance to take a look at that. i don't know what the neighborhood that you are located in san diego is like, what the neighborhood is like. we know here what we are hoping to see and how everything fits in nicely together. >> right. okay, thank you commissioner. appreciate the opportunity. what i am expecting and anticipating as we redraft a master plan considering the location we're in and the change in configuration, the yard, i expect to go to a turnstile kind of entrance like you saw there and not -- and open up in the back of the yard where the triangle lot is a

turnstile employee entrance there as well so there will be less traffic that goes right through the front of the shipyard near crane cove park. people would drive down 20th, come into the back lot and employ ease would enter that way. ~ employees would enter that way. i think with that entry, with the front gate there, a personnel office and then fencing for the rest of the area would be pretty much with the front entry. with some maritime motif decorations, if you will around the entry that would tie in with the crane cove parka tributetion. ~ attributes. >> i haven't had a chance it see it, but the design and how it would continuously beautify the neighborhood and fit in with the rest whatv we know is going in, we want to